Cost basis of Sale of Stock Rights - Inc. Tax
Income from Sale of ADR Stock Rights? - Form 1099-B
My 2010 Form 1099-B shows Gross Proceeds from the sale of rights for ADR shares. I received these proceeds, as I had not exercised the right to buy more ADRs of the company issuing the extra shares. I opted out of the new purchase of shares, so the company issuing the shares sold my rights at fair marlket value and sent me the proceeds, which were included in F1099-B. When I prepared my 1020 Tax Return, I omitted to include this in my Capital Gains & Losses, as I had not actually sold shares. When I had downloaded (from my bank's website) my "Gains & Proceeds", it did not show.
Yesterday, I received a notice from the IRS believing that this is a non-reported sale of stock and, as they have no cost of basis, they send the whole amount to Income.
Questions: 1) I never received any information on how this amount was determined, but I believe I should first determine the cost of basis. I have read in Publ 550 that the cost basis of Sales of Rights is the Fair Market Malue at the time of receiving them. As the bank directly sold them, I assume that they were sold at cost, so my "profit" would be zero. Is this correct?
2) These are IRE (Bank of Ireland) ADRs. Therefore, if my assumption in "1)" that the profit is zero is NOT correct, wouldn't this at least qualify as foreign income for the foreign tax income creidt?
Thank you!